June 28, 2010 / 2:29 AM / 10 years ago

FOREX-Dollar on defensive, longs cut on recovery doubts

* Dollar index holds above support at 85.09, looks vulnerable

* Dlr hits 8-wk low vs Swissie, near 5-wk low vs yen

* Aussie firm on rising commodities

By Rika Otsuka

TOKYO, June 28 (Reuters) - The dollar was on the defensive on Monday as investors sought to cut long positions built in favour of the greenback, while the euro held gains as the focus shifted to the sustainability of a U.S. recovery from the euro zone debt woes.

The dollar index barely moved at 85.31 .DXY, holding above last week’s low of 85.09 that is seen as a near-term support. A fall below 85.09 would take the index to its weakest since mid-May.

A sustained move below 85 would see more losses, with initial support seen near the 55-day moving average at 84.71.

The U.S. currency hit an eight-week low against the Swiss franc and hovered near a five-week trough versus the yen after data released on Friday showed U.S. gross domestic product in the first quarter grew more slowly than expected. [ID:nN25111163].

“The dollar index swooned in the face of all this news on Friday night,” said Tom Lovell, an economist at ICAP in Sydney. “I have a feeling in my bones that perhaps Friday was the start of the market questioning the viability of the U.S. dollar as the safe haven.”

The dollar was up 0.2 percent at 89.35 yen JPY=, but still not far from a five-week low of 89.21 hit on Friday. It lost 1.3 percent last week, the third straight week of declines.

“The dollar is getting help in Tokyo trade as traders know Japanese importers’ bids are there below 89.00 yen,” said a senior FX trader at a big Japanese bank.

“But once the main activity moves to overseas markets, the greenback could be dragged down by speculative selling in an aim to hit options triggers below 89.00 yen.”

Latest data from the Commodity Futures Trading Commission showed currency speculators trimmed bets on the greenback and went long on the yen in the week to June 22. [IMM/FX].

Against the Swiss franc, the U.S. currency slipped 0.2 percent to 1.0913 franc after falling as low as 1.0895 franc, its weakest since May 4.

The pair is now testing a major pivotal area in the 1.0890-98 range, which was a major resistance to the dollar’s advance in February and March, Reuters FX analyst Krishna Kumar said.

Market players feel comfortable about picking up the Swiss franc as the Swiss National Bank backed off a pledge to fight excessive appreciation of the franc earlier this month.

The U.S. GDP numbers came after some weaker-than-expected housing numbers and a dovish Federal Reserve, all of which drove U.S. Treasury yields lower and prompted investors to reassess their dollar positions.

The euro EUR= inched up 0.1 percent to $1.2381, having gained nearly 0.5 percent on Friday. And while the dollar's drop was helping the euro, funding issues in the euro zone were seen likely to cap gains.

Near-term resistance is at $1.2490, the high struck on June 21, with support forming around $1.2254, the low struck on June 25.

Against the yen, the euro EURJPY=R rose 0.2 percent to 110.65 yen.

Traders said the impact from weekend G20 meeting on the currency market was muted, with the summit throwing up no major surprises for investors. [ID:nN18322198].

G20 leaders agreed to take different paths to cut budget deficits and make their banking systems safer, serving a timely reminder to investors that global recovery would be uneven and bumpy.

Still, high-yielding currencies were supported by improved risk appetite as commodities .CRB and stocks .SPX made gains.

The Australian dollar AUD=D4 was up 0.1 percent at $0.8754, having gained nearly 1 percent on Friday. Traders said there was talk of stops lined up above $0.8780 with resistance at $0.8788, the 55-day moving average. (Additional reporting By Anirban Nag and Reuters FX analyst Krishna Kumar in Sydney and Satomi Noguchi in Tokyo; Editing by Michael Watson)

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